The wholesalers’ dominance in American distribution peaked in the early 1880s. Although the total number of wholesalers continued to grow, their market share fell off.45 According to Harold Barger’s estimates, $2.4 billion worth of goods went to retailers by way of wholesalers in 1879, and $1.0 billion went directly from manufacturers and processors to retailers.46 Much of the latter were goods or produce grown or made locally for local markets. Between 1869 and 1879 the ratio between direct sales and sales via the wholesaler rose from 1:2.11 to 1:2.40. And after that date the ratio declined regularly for the ten-year intervals on which Barger made estimates. In 1889 it had declined slightly to 1:2.33; by 1899 to 1:2.15; by 1909 to 1:1.90; and by 1929 to 1:1.16. This reduction in the ratio came more from an increase in sales by mass retailers and large integrated mass producers than it did from sales by local producers selling to local consumers.
Mass retailers began to replace wholesalers as soon as they were able to exploit a market as large as that covered by the wholesalers. By building comparable purchasing organizations they could buy directly from the manufacturers and develop as high a volume of sales and an even higher stock-turn than had the jobbers. Their administrative networks were more effective because they were in direct contact with the customers and be- cause they reduced market transactions by eliminating one major set of middlemen.
The first of the mass retailers, the department stores, had their begin- nings in the 1860s and 1870s. They sold to the growing urban market in the largest American cities. The mail-order houses which appeared in the 1870s to serve the rural markets did not reach full flower until the end of the century. And the chains that moved into the smaller cities and towns and into the suburbs of larger metropolitan areas began to expand in size and numbers only after 1900.
The policies, practices, and administrative organization of these three types of retailers all had much in common and were often directly derived from those of the wholesale jobber. Like the jobber, their basic objective was to assure profits by maintaining a high velocity of stock-turn; and they did so by extending the administrative network so that they coordinated the flow of goods from suppliers to the ultimate consumers.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.